Banks prepaid $45B in FDIC premiums to raise cash

Banks will prepay $45B in FDIC premiums to raise cash
Reuters/USA Today

WASHINGTON (Reuters) — Banks will prepay three years of deposit insurance premiums to give the government cash to handle the rising tide of bank failures, under a rule adopted by the Federal Deposit Insurance Corp. Thursday.

The industry has generally spoken favorably of the approach. While banks would pay about $45 billion in cash upfront, they would not have to book the expense until the assessments were normally due over the three years.

The FDIC would not be able to use the money to bring up the balance of the insurance fund that safeguards bank deposits, but it would have operating liquidity.

The prepayment has been described as an alternative to imposing another hefty emergency fee on the still-recovering industry, or having the FDIC tap its line of credit with the Treasury Department.

“Many institutions are only beginning to recover,” said FDIC Chairman Sheila Bair.

The deposit insurance fund went into the red at the end of the third quarter due to the highest annual level of bank failures since 1992.

The article continues at USA Today.

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